Obama administration looking at ethanol rules, as drought spurs corn prices

Source: By Mario Parker and Roger Runningen, Washington Post • Posted: Monday, August 13, 2012


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Aug. 10 (Bloomberg) — The Obama administration is reviewing the country’s ethanol policy amid calls from both political parties and the United Nations to suspend annual targets as the worst drought in 56 years spurs corn prices.

Twenty-five U.S. senators, both Republicans and Democrats, asked Lisa Jackson, administrator of the Environmental Protection Agency, to halt or lower mandates on how much ethanol the country must use this year and next. The senators’ Aug. 7 letter followed an Aug. 1 petition from a bipartisan coalition of 156 members of the House of Representatives.

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“I would simply say that the EPA, in consultation with the Department of Agriculture, is looking at this,” Jay Carney, the White House press secretary, said today in Washington. “I don’t have a statement one way or the other predicting what the experts are going to say.”

Jose Graziano da Silva, director-general of the UN’s Food & Agriculture Organization, called for a suspension of U.S. government-mandated ethanol output to allow more of the corn crop to be used for food and livestock feed, the Financial Times reported today.

The Agriculture Department cut its forecast for the 2012 U.S. corn harvest by 13 percent from 2011 to 10.8 billion bushels, the lowest level in six years. Ethanol will consume about 4.5 million bushels, or 42 percent of the crop.

Corn for December delivery slid 1.8 percent to settle at $8.0925 a bushel today on the Chicago Board of Trade. Prices yesterday settled at a record $8.2375.

Denatured ethanol for September delivery fell 1.7 cents, or 0.6 percent, to settle at $2.609 a gallon in Chicago. One bushel of corn makes at least 2.75 gallons of the fuel.

Ethanol Mandate

A 2007 energy law known as the Renewable Fuels Standard mandates the use of 13.2 billion gallons of biofuels such as ethanol this year, and 13.6 billion in 2013.

A smaller U.S. corn crop doesn’t justify calls for Obama to suspend the mandate, according to the Renewable Fuels Association, a Washington trade group. It said refiners can meet the targets by drawing from ample stockpiles and utilizing excess credits that can be submitted in lieu of physically blending a gallon of ethanol.

Ethanol production also results in distillers grains, a byproduct of manufacturing the fuel, that can be fed to livestock and poultry, Growth Energy Chief Executive Officer Tom Buis said in a statement today in response to a UN call to alter the policy.

“We are in close contact with USDA as they and we keep an eye on crop yield estimates, and we will review any data or information submitted by stakeholders, industry and states relating to the RFS program,” Alisha Johnson, an EPA spokeswoman, said in a statement Aug. 2. She said today that the statement stands.

‘Severe’ Harm

Livestock and poultry producers on July 30 called on Obama to reduce the mandate saying that it is causing “severe economic harm.”

Delaware Governor Jack Markell and Maryland Governor Martin O’Malley, both Democrats, sent a letter to the EPA’s Jackson today supporting the waiver, saying that the Renewable Fuels Standard may hurt their farmers and poultry companies.

Ethanol production was 817,000 barrels a day last week, down 15 percent from a record in December. Stockpiles sank 3.9 percent to 18.7 million barrels, the lowest level since Dec. 30, Energy Department data show.